Why Myths in Neoclassical Economics Threaten the World Economy: A Post-Keynesian Manifesto

13 Pages Posted: 6 Jan 2014

See all articles by G.C. Harcourt

G.C. Harcourt

UNSW Australia Business School, School of Economics

Peter Kriesler

UNSW Australia Business School, School of Economics

John Nevile

UNSW Australia Business School, School of Economics

Date Written: December 17, 2013

Abstract

There is a myth underlying neoclassical economic analysis of a 'Western' economy, which is that in anything but the relatively short run, defined as the length of a business cycle, the economy reaches an equilibrium position determined entirely by supply side factors and unaffected by measures taken to increase aggregate demand during a slump. This myth is not based on any factual analysis, it is simply assumed. It threatens the wellbeing of the world economy because it allows those who hold it to deny there is any need to change the deregulated state of the international financial sector, that caused the global crisis which started in 2007 and the effects of which have persisted ever since. The fundamental myth has a number of corollaries, which are worth calling associated myths. One of the most important is that the composition of spending to increase aggregate demand during a slump is irrelevant, so that it does not matter if the spending is directed towards consumer goods or to increasing physical and human capital. Another is that monetary policy has a more desirable impact on the economy than does fiscal policy. The paper focuses on neo-classical growth theory; comparative static implications are not considered. Finally, the policy implications are discussed.

Keywords: Financial crisis, Macroeconomic policy, deregulation, neo-classical growth theory

JEL Classification: E6, E32, 04

Suggested Citation

Harcourt, G.C. and Kriesler, Peter and Nevile, John, Why Myths in Neoclassical Economics Threaten the World Economy: A Post-Keynesian Manifesto (December 17, 2013). UNSW Australian School of Business Research Paper No. 2013-36, Available at SSRN: https://ssrn.com/abstract=2374960 or http://dx.doi.org/10.2139/ssrn.2374960

G.C. Harcourt

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Peter Kriesler (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

John Nevile

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
225
Abstract Views
1,368
rank
173,400
PlumX Metrics